Wednesday, February 8, 2017

Unemployment Rate for January 2017

This isn’t an official result, but my feeling has always been that no one can feel a change in the unemployment rate sharper than about 0.5%. So I view this uptick as … nothing at all, really.

Here’s the table of rates from the last 10 years:

You can see that we’ve been bobbing, mostly downward, through a 0.5% range for over a year.

I think we’re at full employment, or alternatively, near the natural rate of unemployment. That is not a solid number (it depends on demographics, and people’s self-definition of whether or not they’re looking for work or not). I usually assert that it’s like the mucky bottom of a muddy stream — not really very solid but firming up somewhere down there. For me, that’s about the 4-6% range.

You can see that in the two ends of this chart:

Of course, some people might interpret any increase in the unemployment rate as a bad thing (It’s Trump’s fault! or It’s Obama’s fault!). Don’t take that seriously. If you look up in the table in late 2008 and early 2009 you can see that we were getting movements of 0.5% (the amount you can feel) every month or two. That was serious.

You can also see the asymmetry of the unemployment rate in the chart: it goes up faster than it comes down. This is normal. From the same site, here’s a chart of the unemployment rate over the last 70 years or so:

The asymmetry is fairly obvious across the entire period. There isn’t much we can do about that. But we do need to keep it in mind when we use the unemployment rate to evaluate policy: the rate not coming down fast enough in response to, say, Obama’s post-recession policies in 2009, or Bush’s in 2002, or Clinton’s in 1993, or Reagan’s in 1983 is normal and not their fault.

These charts do not mark NBER business cycle peaks and troughs. But, for reference, they were in December 2007 and July 2009 the last time around. Eyeballing the first chart and the table, the peak was still when we were in that soft 4-6% full employment range (although it had snuck up 0.6% since May of that year), and the economy’s trough was about 3 months before the unemployment rate topped out.